Analysts react to Sirius subscribers numbers - Orbitcast

Analysts react to Sirius subscribers numbers

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Sirius Subscribers

Analysts had a mixed - albeit somewhat lackluster - reaction to Sirius' subscriber numbers released yesterday. But they all seemingly agreed on one thing: the slowing retail sales are an issue.

The announcement of 8.3 million subscribers implies that quarter-over-quarter net additions came in at 654K. This indicates that year-over-year Q4 net additions are slowing (see my handy-dandy chart above to illustrate this). The fourth-quarter is very important for Sirius and XM, as it historically has given an injection of much needed subscribers, thanks to the holiday shopping season.

But Sirius' Q4 net additions came in below Bear Stearns' estimates of 690k, and far below Utendahl Capital Partners' estimate of 760k (which was a pretty aggressive estimate in the first place, in my opinion). Their total year-end subscriber numbers came in below Bank of America's model of 8.5M subscribers as well.

"We estimate that the retail channel was the culprit versus our estimate – as NPD data has been quite weak," wrote Bank of America analyst Jonathan Jacoby.

"Recall that Sirius had exceeded growth expectations in the last two quarters primarily on the strength of the OEM channel," wrote Peck in a recent client note. "We [estimate] retail gross adds declined... which likely led to the shortfall compared to our estimates."

"...we surmise that weaker than expected retail trends could have been the primary reason the company fell short of our expectations," added UCF's Alden Mahabir.

Not very encouraging news as we look at the year ahead. Something really needs to be done to spur growth at retail, because while OEM brings in the lion share of subscribers, it's obvious that retail still has a significant effect. And as U.S. auto sales are expected to slow significantly this year, it's a good idea to make sure those eggs placed are in several baskets.

20 Comments

I put XM at 400,000 to 450,000 net... with my fingers crossed.

Unfortunately there are only two large baskets available to sat rad, retail and OEM.

The retail is further divided into two categories, after market radios and portables.

The after market has been significantly damaged by the FCC’s FM modulator decision that reduced the power output. The result has been it’s almost a necessity for the majority of buyers to have the radio installed by the retailer, and this often costs far more than the radio itself. Further, the early adopters didn’t mind a radio being stuck on the dash with tape or some mounting device, but the current user doesn’t like this. It’s the normal progression of a product. So after market sales are down and are likely to stay down unless OEM can drive interest in them.

The portable market is damaged by the simple fact that sat rad technically doesn’t make a good portable. Its signal comes from space or a repeater. If anything, including your body, gets in the way it fades out and drives the listener crazy. Even with the gorfy headphone antennas it’s far from perfect. Also since it’s a radio it, by necessity, consumes more power and as such will never be as small, light, or have the battery life of an IPOD or MP3. So the market for these is really limited and small.

Unfortunately, OEM is simply going to become the major market, the retail end will continue to languish. Hopefully OEM will be sufficient, it’s ideal for a car.

I've been waiting to get another subscription to Sirius for about a year now. Been holding off waiting to see where the merger goes. I'm glad Sirius is still growing.

I am not surprised by the erosion of retail- to expect BOTH retail and OEM to grow at the same time is not logical. Greater OEM penetration has to affect retail sales.

retail is terrible because there are no reps pushing sales at the retail outlets. I informed Sirius last year that our local Best Buy had a display but it was missing radios, dirty, and looked absolutely awful. It made sirius look like junk. This past Christmas season those displays were empty and the only 'merchandising' was a stack of sirius boxed radios sitting in the corner on the floor. You had to look hard to find the radios and there were no display signs for sirius or xm any where.

The analysts didn't mention anything about the MERGER in their notes Ryan??? You have to be kidding me.

Nobody cares about retail, OEM, churn, cash flow or anything else except the merger right now. All that other stuff is secondary until you get a yes or no on the merger. Then the other stuff becomes of primary importance.

Nobody cares about retail, OEM, churn, cash flow or anything else except the merger right now. All that other stuff is secondary until you get a yes or no on the merger. Then the other stuff becomes of primary importance.

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100% correct..... and why XM and sirius agreed to merge ... but it will never happen... GM/Honda,Hyundai all ramping up and Toyota to follow for XM
Ford, Chrysler and their partners ramping up too, but not enough to offset to falling retail....

another 2 months we get either a no or a yes and the two companys walk away and are close to profitability.

It all just fits too good. I know I sound like a U government UFO conspirisit, but it fits too well.

Let's not forgot the very real possibility is that at retail people are hesitant to buy either xm or sirius because of doubts about how the merger will play out. I think that at least had to be a factor.

>>> Nobody cares about retail, OEM, churn, cash flow or anything else except the merger right now.

While this statement is correct as it pertains to Sirius shareholders (over 1,000,000 of them) -- the cold, hard facts are that Sirius had one thing going for it -- its retail dominance since the hiring of Stern. Of course, if you are dominant in an insignificant market and trail substantially in the much larger market (OEMS), that isn't exactly a big win.

This miss in subscriber #s strongly supports what I (and a few others) have been saying for some time -- retail is history. If there is to be growth in this business, it will come through OEM installs, an area where XM is much stronger than Sirius. Ultimately, this means that XM maintains its subscriber leadership -- if you adjust the numbers so that both are counting subs the same way.

This miss also proves, beyond any reasonable speculation, that spending money on big-name content like Stern, MLB, NFL, Oprah, NASCAR, and others, is a mistake and must be curtailed by both companies.

Great content is critical. But there is plenty of great content (in the form of music and reasonably priced sports rights) without these ridiculous, massive contracts.

There is no way Stern gets re-hired for another term unless he takes a huge salary cut. Not going to happen. And what will happen if Sirius doesn't keep him? Those Stern-worshiping fanatics will be gone, too.

These figures suggest strongly that SIRI's financial crisis is about to get worse, not better.

OEM is where it's at. With a radar detector, GPS and cell phone plugged into the 12 volt outlet just how much more clutter do you want on the dash of your car by adding a plug and play satrad receiver. When FM radio first became available there were a bunch of FM modators sold. I had one, but with the purchase of my next car I made sure that it had an AM-FM receiver built in. The same goes for satrad. With the eception of portable satrad receivers the retail chain for auto satrad receivers is a fading star. That's OK as the OEM channel will pick up the slack. There will be a bit of pain during the transition.

msandmann:

You got it. I've got two XM subs now, and what's kept me from even considering upgrading a receiver, or adding another sub, or even recommending it to friends as much as I used to? My fear that the merger would be approved. If I hear a 'no', I'm buying an Xpress RC immediately.

And I think Stack Pointer has a good point too (re: big-$$ contracts) in that there's no way they can justify paying Stern the big bucks again, merger or not.

What should be REALLY alarming about SIRI's performance is that the 654k includes a large, unknown quantity of OEM installs that are included sheerly because they were PRODUCED by the OEMs. Not sold. And when they ARE sold, we know that half, if not more, of these will not renew their subscribers once the one year promo period is over.

SIRI's #s would be much more anemic than they reported if they had removed those vehicles that are sitting, either on the OEM's lot, or on the dealer's lots as unsold vehicles. SIRI has claimed that OEM installs are ramping heavily with the '08 model year, and these vehicles with greater factory installation penetration are rolling off assembly lines at the highest rate ever.

We cannot know just how bad this situation is unless Sirius does the right thing and discloses the number of so-called "parking lot subs". But it is clear that 654K is an alarmingly poor figure for Sirius.

Some will say, "What about XM? What if XM reports only 300-400k net adds?". And that isn't great -- but XM hasn't spend massive amounts of money on Howard Stern to bring retail subscribers onboard. If one properly considers that a substantial portion of Stern's payday is about subscriber acquisition, rather than delivering content, it becomes clear that SIRI is in a very difficult position as the retail decline continues.

Unfortunately, if the merger proceeds, XM will be in no position to capitalize on SIRI's weakness. Everyone loses.

They already did disclose the number. 11%. You already knew this and state it frequently.

I'm looking into my crystal ball 6 weeks ahead - when XM reports 450k net adds, Stack will manipulate it into XM somehow beating Sirius despite the 200k difference, when in reality both companies are still in bad shape.

And yes, XM has something like a 53-54% edge in OEM, but you should be well aware that GM got the better end of the deal on their contract, which pretty much cancels out the small advantage in OEM installs.

How can you continue to say with a straight face that XM is appreciably better off than Sirius? They both suck and they'll both continue to suck as long as they have split resources in an apathetic market, no matter how many hours you spend on message boards lobbying in XM's behalf.

They definately need to step up the marketing. But smart marketing and at low price. If apple could push the ipod to its success I dont see why Sirius or XM cant either. I have mentioned this before, but maybe they should do a coast to coast college marketing campaign. Get some playmates from playboy, whack packers from stern, OandA, and others and just get those college kids on board.
Or they should figure out a way to build on the community image of Sat Radio. I see new no name music artist coming out from myspace. Because myspace has turned into a place for people (not just musicians), to build a following and showcase talent. I think Sat Radio has the power to reinvent music and give the little guys a chance. I see it happening with stand up comedians on the many comedy channels. If sirius could somehow dedicate a channel to new talent, I could see them recreating the culture of music.

But I agree, even though the numbers are going up for subs...time is running out and if either company keeps draggign like this, the wasted money could catch up with them.

Hoo Hoo, JB.

You know too much. What are you, an industry insider or just a stockjobber? Stop telling everyone that both companies suck. I'll never get my raise if you keep that up.

Hoo Hoo

>> They already did disclose the number. 11%. You already knew this and state it frequently.

That was LAST quarter. The number will likely have increased for Q4 given the increased OEM penetration.

>> I'm looking into my crystal ball 6 weeks ahead - when XM reports 450k net adds, Stack will manipulate it into XM somehow beating Sirius despite the 200k difference, when in reality both companies are still in bad shape.

While I doubt XM will make it to 450K, XM reporting 450K would be better than SIRI reporting 654K. That's what so many of you don't seem to comprehend. XM is more conservative in its subscriber accounting, it reports OEM churn after 3 months versus SIRI's 1-year and 3-year deals, and XM has a larger subscriber base which naturally results in more subscribers lost to churn. Complicated stuff, I know, but keep trying, you'll figure it out.

>> And yes, XM has something like a 53-54% edge in OEM, but you should be well aware that GM got the better end of the deal on their contract, which pretty much cancels out the small advantage in OEM installs.

While GM has a great deal, they SHOULD have -- they were doing factory installs in December '01, when nobody else would take a chance on sat radio. Without the GM contract there would be NO satellite radio today.

53-54%?

As of now, XM has GM, Toyota, Honda, Nissan, and Hyundai plus some -- total them up and year to date it is 59.5% of the OEM market. Add to that the fact that XM has the GROWING OEMs (Toyota, Honda, Nissan, Hyundai) versus SIRI having the DYING OEM's (Ford & DCX), and the advantage becomes pretty clear. SIRI made the decision pursue retail (i.e., blew, 3/4 billion on Stern) while XM made the decision to pursue OEM. A couple years down the road XM will rather obviously have well above 60% of OEMs.

>>> How can you continue to say with a straight face that XM is appreciably better off than Sirius? They both suck and they'll both continue to suck as long as they have split resources in an apathetic market, no matter how many hours you spend on message boards lobbying in XM's behalf.

I can say it because XM will eventually become profitable, and it is unclear that Sirius will. I think you are totally underestimating what a serious problem this quarter is for Sirius; their retail presence has peaked and dropped off rapidly, and now, they have a real problem going forward.

Split resources? WTF is that? Hopefully, you are not trying to suggest that, somehow, "combined resources" (resources which are fixed, sunk costs) is better? SIRI's merger plan is just one more Howard Stern-styled Hail Mary to keep Sirius from having to own up to its financial nightmare.

The market is apathetic only at retail, and obviously, that is a much bigger problem for Sirius than it is for XM.

Hoo Hoo, Stack Pointer. Way to tell that JB. I guess he is just a stockjobber.

Hoo Hoo

I went to buy a new car, a Ford Fusion in fact, and park my gas guzzling Dodge Ram pickup until I need it or it snows. I went to one of the largest Ford dealers in the Pittsburgh area. With 20 or so Fusions on the lot out of the 52 2008's they received from Ford, there was only ONE left with Sirius, about 30 were sold WITH satellite radio. The salesman said it is the most requested option on the Fusion and higher class models. I canceled my two Audiovox PNP3's and bought a Stiletto 2 for portability and use in my part-time truck . The salesman drives a Ford naturally and said his wife ditched her XM because of all the wires. People want OEM for the car, and a portable or PNP for home or while out and about. I know I hated the wires and the suction cup mount. The argument of cars sitting on lots is Bull Shit, those models with Sirius on the lot is they don't last very long. As new models and higher OEM installs occur, the retail is going to go down.

>>> The argument of cars sitting on lots is Bull Shit, those models with Sirius on the lot is they don't last very long.

Your remark is immaterial. We KNOW how long they last, and more importantly, we know how many there are -- 11% of SIRI's subscribers as of last quarter (the figure will almost assuredly increase for Q4) were unsold vehicles. You're talking about 800,000 Sirius subscribers who have never even SEEN the car to which their subscription is being attributed. 1 in 9.

It is not bullshit. Since one of the brighter analysts (Jacoby, I believe) managed to get SIRI's management to admit this under-the-table subscriber counting was going on, the percentage has increased quarter-by-quarter. And yes, I have been bitching about it ever since -- because it is totally inappropriate and misleading reporting.

Siriots' willingness to forgive these transgressions is amazing, in light of the losses most of you have sustained on your "investment".

It's not a horrible number, but it's not great either.

Self-pay and fully-loaded churn were both flat from the 9 months ended September, so we can basically figure that those full-year figures apply for the quarter.

2.2% fully-loaded churn over a daily average count of 7.9 million (a fair amount of the net can be assumed to have occurred in December, though not as pronounced as in prior years as retail declines in importance; I'm using a 3:2 ratio in averaging beginning and ending counts) implies 525k deactivations and thus just shy of about 1.2 million gross adds.

I'll make a WAG of about 200k retail net, which implies (this time, a 3:1 ratio for the average) an average retail count of 4.479 million, and thus around 215k retail deactivations. This further implies around 415k retail gross adds.

1.2 million less 415k strongly indicates that the OEM channel contributed around 800k gross. 650k less 200k implies that OEM contributed 450k net. Thus, we can safely say that around 350k OEM units churned in the quarter.

Similar logic as above can be applied to estimate OEM grosses in Q306 and Q107, the quarters most likely to have produced gross adds that had the chance to convert in Q407. For Q107, self-pay was 1.6% IIRC, implying retail churn of 208k, thus 227k OEM deacs and 600k OEM gross. For Q306, I'll take the "1.6 to 1.7% range" from that call as implying 1.67% and thus 179k retail deacs, 112k OEM deacs, and 350k OEM gross. The question then is what was the split between DCX and Ford in each of those quarters (since it's Q1 Fords and Q3(-1) DCX's that would convert in Q4). Those numbers would seem to indicate around 550k conversion opportunities, implying a minimum conversion rate of 36%.

However, there are a number of self-paying OEM subscribers out there; I'd suspect around a million at the end of Q3 and about 1.2 million at the end of Q4. That implies about 50k churn from there, and deducting this from 350k OEM churn yields around 300k failed promos for a likely conversion rate of 45%.

We'll see how ARPU does... remember that if you're going to remove the non-revenue/parking-lot subs from the sub count, you've got to add about 12% to ARPU. That Sirius' ARPU is even competitive with XM at this stage in the companies' respective growth trajectories is solely due to Sirius' stronger subscriber mix (for instance, Sirius has about a million more non-family-plan retail subs than XM does...)